THIS is What "Too Big To Fail" Really Means
From planetmoney:
Credit default swaps have turned every big bank and corporation into a financial liability grenade. Every one of those lines is a trip wire. If the one bank/organization goes down, it triggers a massive liability to everyone connected by a line.
They established these liability linkages without considering the possibility of actual failure or holding enough liquid assets to pay out should a bank actually fail (like an insurance agency would be forced to do). That's why Lehman Bros. proved how tenuous the entire big banking system really is.
X-Posted to the_recession.
Credit default swaps have turned every big bank and corporation into a financial liability grenade. Every one of those lines is a trip wire. If the one bank/organization goes down, it triggers a massive liability to everyone connected by a line.
They established these liability linkages without considering the possibility of actual failure or holding enough liquid assets to pay out should a bank actually fail (like an insurance agency would be forced to do). That's why Lehman Bros. proved how tenuous the entire big banking system really is.
X-Posted to the_recession.